FTSE 350 reports still 'disappointing', says EY

Key points

EY found just 1% more FTSE 350 reports than last year clearly showed in the business model how the company makes money.

Only 12% linked their business model, strategy, KPIs, risks and remuneration.

10% included company culture as part of the strategy or business model.

A review by EY has revealed only 'fractional' improvements to FTSE 350 annual reporting when compared to last year.

The firm analysed reports from 100 companies and found that just 59% of them had clearly illustrated how the company makes money in their business model, up just 1% from 2015.

According to the research, the average FTSE 350 annual report is now more than 181 pages long and the majority of companies (74%) chose a viability statement period of just three years, compared to 5% who chose four years and 21% who chose five years.

Viability statements were a new requirement outlined in the 2014 Corporate Governance Code in order to provide an improved and broader assessment of long-term solvency and liquidity.

A disappointing 12% of annual reports this year made comprehensive links between their business model, strategy, key performance indicators, risks and remuneration, compared to 9% in the previous year.

Mala Shah-Coulon, Executive Director in EY’s corporate governance team, commented: “Since the introduction of the Strategic Report and Directors’ Remuneration Reports it seems the pace of improvement in the quality and depth of disclosures is slowing.

“The limited improvement is disappointing, however, there were some encouraging new disclosures in preparing for potential business model disruption and cyber-security risks.”

While 97% of those analysed mentioned company culture in their annual report, only 10% included it as part of the strategy or business model and just 9% provided an explanation of how culture is measured.

Research by KPMG earlier this year also indicated that the majority of corporate reporting requires improvement, suggesting that reports tend to be short-sighted and lacking in pertinent data.

Mala at EY concluded: “Compared to recent years, there aren’t substantial new reporting requirements for their 2016 annual reports.

“In my view, this is an opportunity for companies to reflect upon and improve. In an era of change and uncertainty, particularly with digital advancements, Brexit and governance, companies need to evolve and adapt.”